SOURCE:
Credit Bubble Bulletin : Weekly Commentary: Valuable Insight from the Q2 '22 Z.1
Ye Editor's easy to read edited version:
FINANCIAL DATA:
S&P500 rallied 3.6% (down 14.7% y-t-d),
The Dow recovered 2.7% (down 11.5%).
The Utilities surged 3.7% (up 6.7%).
The Banks rallied 5.0% (down 16.6%)
The Broker/Dealers jumped 4.4% (down 6.6%).
The Transports gained 2.4% (down 14.7%).
The S&P 400 Midcaps rallied 4.4% (down 12.1%)
The small cap Russell 2000 recovered 4.0% (down 16.1%).
The Nasdaq100 advanced 4.0% (down 22.9%).
The Semiconductors jumped 4.7% (down 31.0%).
The Biotechs surged 5.7% (down 10.0%).
With gold bullion gaining $5,
the HUI gold stock ndex rallied 6.2% (down 23.2%).
U.K.'s FTSE rallied 1.0% (down 0.5% y-t-d).
Japan's Nikkei rallied 2.0% (down 2.0% y-t-d).
Japan's Nikkei rallied 2.0% (down 2.0% y-t-d).
France's CAC40 gained 0.7% (down 13.2%).
German DAX increased 0.3% (down 17.6%).
Spain's IBEX 35 recovered 1.3% (down 7.8%).
Italy's FTSE MIB rose 0.8% (down 19.2%).
Brazil's Bovespa gained 1.3% (up 7.1%)
Mexico's Bolsa jumped 2.5% (down 11.7%).
South Korea's Kospi fell 1.0% (down 19.9%).
India's Sensex advanced 1.7% (up 2.6%).
China's Shanghai rallied 2.4% (down 10.4%).
Turkey's Istanbul National 100 index surged 9.3% (up 89.6%).
Russia's MICEX dropped 1.8% (down 35.9%).
Two-year government yields surged 17 bps to 3.56% (up 283bps y-t-d).
Five-year T-note yields jumped 14 bps to 3.44% (up 217bps).
Ten-year Treasury rose 12 bps to 3.31% (up 180bps).
Long bond yields gained 10 bps to 3.45% (up 155bps).
Benchmark Fannie Mae MBS yields jumped 13 bps to 4.81% (up 274bps).
Federal Reserve Credit last week declined $8.7bn to $8.788 TN. Fed Credit is down $101bn from the June 22nd peak. Over the past 156 weeks, Fed Credit expanded $5.062 TN, or 136%.
Freddie Mac 30-year fixed mortgage rates surged 23 bps to 5.89% (up 301bps y-o-y) - the high since November 2008.
Fifteen-year rates jumped 18 bps to a 13-year high 5.16% (up 297bps).
Five-year hybrid ARM rates rose 13 bps to 4.64% (up 222bps).
Jumbo mortgage 30-year fixed rates unchanged at 6.10% (up 305bps).
For the week, the U.S. Dollar Index declined 0.5% to 109.00 (up 13.9% y-t-d).
For the week, the U.S. Dollar Index declined 0.5% to 109.00 (up 13.9% y-t-d).
The Chinese (onshore) renminbi declined 0.38% versus the dollar (down 8.24% y-t-d).
The Bloomberg Commodities Index slipped 0.5% (up 19.5% y-t-d).
The Bloomberg Commodities Index slipped 0.5% (up 19.5% y-t-d).
Spot Gold increased 0.3% to $1,717 (down 6.1%).
Silver rallied 4.5% to $18.86 (down 19.1%).
WTI crude was little changed at $86.79 (up 15%).
Gasoline fell 1.2% (up 9%)
Natural Gas dropped 9.0% to $8.00 (up 114%).
Copper recovered 4.5% (down 20%).
Wheat surged 7.2% (up 13%)
Corn rose 2.9% (up 16%).
Bitcoin jumped $1,348, or 6.8%, this week
to $21,308 (down 54%).
ECONOMIC NEWS:
September 6 – Bloomberg (Anna Shiryaevskaya): “European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA. Aside from fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings. That’s pushing European Union officials to intervene to prevent energy markets from stalling, while governments across the region are stepping in to backstop struggling utilities. Finland has warned of a ‘Lehman Brothers’ moment, with power companies facing sudden cash shortages. ‘Liquidity support is going to be needed,’ Helge Haugane, Equinor’s senior vice president for gas and power, said... The issue is focused on derivatives trading, while the physical market is functioning, he said, adding that the energy company’s estimate for $1.5 trillion to prop up so-called paper trading is ‘conservative.’”
September 9 – Bloomberg (Jorge Valero, Kamil Kowalcze and Jana Randow): “European Central Bank President Christine Lagarde ruled out providing short-term financing lines to struggling energy firms -- saying that’s the job of European Union governments. ‘In this current, very volatile environment, it’s important that fiscal measures be put in place to provide liquidity to solvent energy-market participants, in particular utility firms,’ Lagarde told a news conference… ‘As far as the ECB is concerned, and the national central banks of the Eurosystem, of course we stand ready to provide liquidity to banks, not to energy utility firms,’ she said.”
September 5 – Financial Times (Nathalie Thomas in Edinburgh and Philip Stafford and David Sheppard): “European electricity producers are calling for collateral requirements in wholesale power markets to be eased as they urge the EU to help stave off what some experts have warned could be the ‘energy sector’s version of Lehman Brothers’. Kristian Ruby, secretary-general of Eurelectric, which represents more than 3,500 European utilities, said the ballooning sums that power producers were required to post as collateral because of extreme price volatility in wholesale energy markets was of ‘grave concern’. He called for the rules to be softened so that generators could consistently put up other financial instruments, such as bank guarantees, at trading exchanges to avoid a liquidity crunch…”
September 6 – Yahoo Finance (Dani Romero): “The recent synchronized selloff in stocks and bonds has crushed one of the most popular strategies for long-term investors: the 60/40 portfolio. According to data from strategists at Bank of America Global Research published last week, the 60/40 portfolio — a mix of 60% stocks and 40% bonds — was down 19.4% year-to-date through the end of August, on track for its worst year since 1936. Through the end of August, the S&P 500 was down over 16% year-to-date, while long-term Treasuries were down over 20% and investment grade corporate credit was down 13%.”
September 7 – Bloomberg (Stephen Stapczynski): “China is lapping up liquefied natural gas shipments from Russia on the cheap. The Sakhalin-2 LNG export plant in Russia’s Far East sold several shipments to China for delivery through December at nearly half the current spot price in a tender that closed earlier this week, according to traders… Still, global rates have soared so much this year that the project can profit from those sales. The move is beneficial for both countries -- China is able to secure cheaper supply and resell shipments from more expensive exporters to utilities in Europe and Asia, while Russia can continue selling fuel at a profit.”
September 5 – Financial Times (Max Seddon, David Sheppard and Henry Foy): “Russia’s gas supplies to Europe via the Nord Stream 1 pipeline will not resume in full until the ‘collective west’ lifts sanctions against Moscow over its invasion of Ukraine, the Kremlin has said. Dmitry Peskov, president Vladimir Putin’s spokesman, blamed EU, UK and Canadian sanctions for Russia’s failure to deliver gas through the key pipeline, which pumps gas to Germany from St Petersburg via the Baltic Sea. Although Moscow continues to claim technical faults have caused the cuts in gas supplies, Peskov’s comments were the starkest demand yet by the Kremlin that it wants the EU to roll back its sanctions in exchange for Russia resuming full gas deliveries to the continent.”
September 5 – Reuters (Guy Faulconbridge and Felix Light): “The Kremlin… blamed the West for triggering the worst European gas supply crisis ever and warned the Group of Seven advanced economies that Moscow would retaliate over its plan to impose a price cap on Russian oil… ‘Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain,’ Kremlin spokesman Dmitry Peskov told reporters… ‘We see incessant attempts to shift responsibility and blame onto us. We categorically reject this and insist that the collective West – in this case, the EU, Canada, the UK - is to blame for the fact that the situation has reached the point where it is now.’”
September 6 – Bloomberg: “Gazprom PJSC said it will shift its contract to supply gas to China to rubles and yuan from euros, as the Kremlin steps up efforts to move trade out of currencies it considers ‘unfriendly’ amid US and European sanctions. The state-run gas giant signed an additional agreement to its existing contract with China National Petroleum Corp. on the issue Tuesday... Payment will be made 50% in rubles and 50% in yuan, effective immediately…”
September 6 – Reuters (Ali Kucukgocmen): “Turkish President Tayyip Erdogan said… Russia is cutting natural gas flows to Europe in retaliation for sanctions, adding that Europe is ‘reaping what it sowed’… ‘Europe is actually reaping what it sowed,’ Erdogan told reporters…, adding that sanctions drove Putin to retaliate using energy supplies. ‘Putin is using all his means and weapons, and the most important of these is natural gas. Unfortunately - we wouldn't want this but - such a situation is developing in Europe,’ Erdogan said. ‘I think Europe will experience serious problems this winter. We do not have such a problem,’ he added.”
September 8 – Reuters (Aftab Ahmed): “India's finance minister said… importing Russian oil was part of the country's inflation-management strategy and that other countries were doing something similar. Despite Western pressure, India has not condemned Russia's February invasion of Ukraine, instead calling for a diplomatic solution to the crisis and an end to violence. Russia has for decades been India's biggest foreign supplier of defence hardware.”
September 5 – Washington Post (Laura Reiley): “It was a bad year for corn. And for tomatoes. And for many other American crops. Farmers, agricultural economists and others taking stock of this summer’s growing season say drought conditions and extreme weather have wreaked havoc on many row crops, fruits and vegetables, with the American Farm Bureau Federation suggesting yields could be down by as much as a third compared with last year. American corn is on track to produce its lowest yield since the drought of 2012… This year’s hard red winter wheat crop was the smallest since 1963… In Texas, cotton farmers have walked away from nearly 70% of their crop because the harvest is so paltry, according to the U.S. Department of Agriculture. The California rice harvest is half what it would be in a normal year, an industry group said.”
September 8 – Bloomberg (Pratik Parija and Swansy Afonso): “India, the world’s biggest rice shipper, restricted exports of key varieties that mainly go toward feeding Asia and Africa, threatening to rattle global crop markets and exacerbate food inflation and hunger. The government has imposed a 20% duty on shipments of white and brown rice, and banned broken rice sales abroad. The curbs apply to roughly 60% of India’s overall rice exports… The moves by India, which accounts for 40% of the global rice trade, will put further pressure on countries that are struggling with worsening hunger and soaring food inflation. Rice is a staple food for about half of the world’s population…”
September 6 – Bloomberg (Reade Pickert): “The US service sector expanded in August at the fastest pace in four months amid a pickup in business activity and new orders, while price pressures continued to ease. The Institute for Supply Management’s services index edged up to 56.9 from 56.7… Measures of business activity and new orders both advanced to their strongest readings of the year, reflecting both an ongoing shift in spending habits and steady wage gains. Demand strengthened abroad as well, with export orders expanding at the fastest pace in nearly a year. The upbeat report points to resilient and robust consumer demand for services despite high inflation, rising interest rates and general uncertainty about the economic outlook.”
September 7 – CNBC (Diana Olick): “In June the average rate on the 30-year fixed shot over 6% briefly, and that was enough to turn the once-hot housing market on its heels. Rates pulled back in July and August, but the damage was already done. Now rates are heading past 6% yet again, causing already beleaguered mortgage demand to fall even further… Mortgage applications to purchase a home dropped 1% for the week and were 23% lower than the same week one year ago. Given today’s higher rates, a person buying a $400,000 home would pay close to $700 more per month than they did a year ago.”
September 7 – CNBC (Diana Olick): “Some homeowners are losing wealth as high mortgage rates weigh on home values, at least on paper, as the once red-hot housing market cools quickly. Sales have been slowing down for several months, with mortgage rates now double what they were at the start of this year. Home prices, likewise, dropped 0.77% from June to July, according to… Black Knight… While that may not sound like a lot, it was the largest monthly decline since January 2011 and the first monthly drop of any size in 32 months. ‘Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities,’ wrote Ben Graboske, president of Black Knight Data & Analytics.”
September 5 – The Hill (Sylvan Lane): “Persistent COVID-19 symptoms could be keeping millions of Americans out of the workforce. Economists and policymakers have struggled to figure out why a much lower percentage of working-age adults are in the labor force than before the pandemic. The number of Americans either employed or looking for work eclipsed its pre-pandemic level in August… But the labor force participation rate remains 1 percentage point below its February 2020 level, a gap roughly equivalent to 1.6 million people.”
September 7 – Reuters (Howard Schneider): “The U.S. unemployment rate may need to reach as high as 7.5%, double its current level, to end the country's outbreak of high inflation, according to new estimates from a team of researchers including two staff economists from the International Monetary Fund. That would entail job losses of perhaps 6 million people, but the research found that only under ‘quite optimistic assumptions’ about the behavior of the U.S. job market and inflation would the U.S. Federal Reserve be able to tame current price pressures with a smaller blow to employment.”
September 6 – Financial Times (Cheng Leng and Edward White): “China’s biggest four banks have been hit by a more than 50% increase in overdue loans from the property sector over the past year, as the real estate market’s liquidity crunch spills into the financial sector. China’s top lenders — the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China — last week reported combined overdue property loans of Rmb136.6bn ($20bn) at the end of June, up from Rmb90bn at the same time last year. The rise in bad loans from the deteriorating property crisis is worsening asset quality across China’s Rmb367.7tn banking industry… A senior official at one of the Big Four lenders said the state of the property market meant that the banks had ‘no incentive’ to boost lending to the sector despite pressure from Beijing. ‘Our cost of capital is still too high. We have no incentive to beef up lending even though the regulator asked us to do so. The more loans we issue, the more [non-performing loans] we will have. The return on our lending business has gone down a lot while NPLs are taking off,’ the person said.”
September 8 – Reuters (Ryan Woo and Roxanne Liu): “The Chinese city of Chengdu extended a lockdown for a majority of its more than 21 million residents on Thursday to prevent further transmission of COVID-19 while millions more in other parts of China were told to shun travel in upcoming holidays. Chengdu… was locked down on Sept. 1 after COVID cases were detected, becoming the largest Chinese metropolis hit with curbs since Shanghai's lockdown in April and May.”
September 8 – Reuters (Liangping Gao and Ryan Woo): “China's consumer prices rose at a slower-than-expected pace in August while the rate of producer inflation hit an 18-month low… The consumer price index (CPI) increased 2.5% from the same month a year earlier…, slower than 2.7% in July and the 2.8% average forecast… Slower growth in consumer prices came as food prices rose 6.1% on year in August, versus 6.3% in July, with non-food items at 1.7% from July's 1.9% rise.”
September 7 – Reuters (Julie Gordon): “The Bank of Canada hiked interest rates by 75-bps to a 14-year high on Wednesday, as expected, and said the policy rate would need to go higher still given the fight against raging inflation. The central bank, in a regular rate decision, increased its policy rate to 3.25% from 2.5%, matching analyst forecasts to hit a level not seen since April 2008. The decision lifted rates above the neutral range for the first time in about two decades.”
September 5 – Bloomberg (Swati Pandey): “Australia’s central bank raised interest rates by a half-percentage point for a fourth consecutive meeting and signaled further hikes ahead in its drive to rein in inflation. The Reserve Bank took the cash rate to 2.35%, the highest level since 2015… The tightening is Australia’s quickest in a generation with the cycle beginning in May at a record-low 0.1%. Today’s decision reflects a resolve among global central bankers to keep increasing borrowing costs until inflation meaningfully eases, even at the cost of economic growth.”
September 6 – Bloomberg (Lorretta Chen): “Asian companies are increasingly resorting to loans, some just months in length, as a record bond rout this year complicates access to the more secure longer-term funding market. Among firms that had been active bond issuers in Asia, the number seeking short-term loan facilities this year has increased some 30% to 40%, according to Christophe Cretot, head of debt origination and advisory, Asia-Pacific at Credit Agricole SA… ‘We have seen that in markets such as Singapore, Indonesia and China where issuers with maturing bonds in the next three to six months are looking for facilities of nine to 12 months to buy some time before issuing again,’ he said.”
September 5 – Reuters (Nicholas Larkin and Eddie Spence): “Europe’s energy crisis is getting worse, piling pressure on the commodities industries that provide building blocks for the continent’s economy. Power- and gas-intensive sectors such as steel, fertilizers and aluminum -- the most widely used base metal -- are being forced to close factories or pass on soaring costs to customers. Even sugar makers are feeling the pinch. The tumult risks further squeezing households during the worst cost-of-living crisis in decades and pushing economies into recession.”
September 4 – Reuters (Michael Kahn): “An estimated 70,000 people protested in Prague against the Czech government on Saturday, calling on the ruling coalition to do more to control soaring energy prices and voicing opposition to the European Union and NATO. Organisers of the demonstration from a number of far-right and fringe political groups including the Communist party, said the central European nation should be neutral militarily and ensure direct contracts with gas suppliers, including Russia.”
September 5 – Reuters (Beril Akman): “Turkish inflation exceeded 80% for the first time since September 1998, as policies that prioritized economic growth and cheap lending exact a toll on the lira and price stability. Annual inflation quickened for a 15th consecutive month to 80.2% in August, up from 79.6% in July… President Recep Tayyip Erdogan, who believes that cheaper borrowing costs can slow inflation instead of pushing it higher, has kept exports and employment at the top of the agenda.”
September 6 – Bloomberg (Chikako Mogi): “The Bank of Japan said it would boost scheduled bond purchases as the intensifying Treasuries selloff puts upward pressure on global yields and weakens the yen. The BOJ said it would buy 550 billion yen ($3.8bn) of five-10 year bonds at its regular operations, up from 500 billion yen scheduled. The move comes as Japan’s benchmark 10-year yield hit 0.245%, approaching the 0.25% upper limit of the BOJ’s tolerated trading band. Japanese government bonds last came under pressure in June when only unprecedented BOJ buying kept benchmark yields below the 0.25% ceiling.”
September 7 – Financial Times (Leo Lewis, Kana Inagaki and Song Jung-a): “The yen fell further against the dollar on Wednesday, leaving it down a fifth this year as Japan’s government stepped up its verbal intervention aimed at stemming an acute sell-off in the currency. Japan’s currency declined to ¥144 against the dollar, its weakest level since 1998, despite a shift in language by Japanese officials, which gave the strongest hints to date that they could take action if the currency continues to slide. Finance minister Shunichi Suzuki said yen moves should be stable and reflect economic fundamentals, calling for stability in currency markets.”
September 4 – Reuters (Daniel Leussink): “Japan's services sector activity shrank for the first time in five months in August as a resurgence of COVID-19 infections hurt demand… The contraction shows that a recovery of the world's third-largest economy remains fragile at best and is worrying at a time when the global growth outlook is turning increasingly pessimistic. The final au Jibun Bank Japan Services purchasing managers' index (PMI) dropped to a seasonally adjusted 49.5, marking the first contraction since March.”
September 5 – Financial Times (Aime Williams and Steven Bernard): “Deadly flooding in Pakistan destroyed homes and decimated crops in what the country’s officials say is an unprecedented climate disaster, affecting an estimated 30mn people or about 15% of the population. About one-third of the country was still submerged last Tuesday when satellite data from the European Space Agency mapped the extent of the deluge.”
ECONOMIC NEWS:
September 6 – Bloomberg (Anna Shiryaevskaya): “European energy trading is being strained by margin calls of at least $1.5 trillion, putting pressure on governments to provide more liquidity buffers, according to Norway’s Equinor ASA. Aside from fanning inflation, the biggest energy crisis in decades is sucking up capital to guarantee trades amid wild price swings. That’s pushing European Union officials to intervene to prevent energy markets from stalling, while governments across the region are stepping in to backstop struggling utilities. Finland has warned of a ‘Lehman Brothers’ moment, with power companies facing sudden cash shortages. ‘Liquidity support is going to be needed,’ Helge Haugane, Equinor’s senior vice president for gas and power, said... The issue is focused on derivatives trading, while the physical market is functioning, he said, adding that the energy company’s estimate for $1.5 trillion to prop up so-called paper trading is ‘conservative.’”
September 9 – Bloomberg (Jorge Valero, Kamil Kowalcze and Jana Randow): “European Central Bank President Christine Lagarde ruled out providing short-term financing lines to struggling energy firms -- saying that’s the job of European Union governments. ‘In this current, very volatile environment, it’s important that fiscal measures be put in place to provide liquidity to solvent energy-market participants, in particular utility firms,’ Lagarde told a news conference… ‘As far as the ECB is concerned, and the national central banks of the Eurosystem, of course we stand ready to provide liquidity to banks, not to energy utility firms,’ she said.”
September 5 – Financial Times (Nathalie Thomas in Edinburgh and Philip Stafford and David Sheppard): “European electricity producers are calling for collateral requirements in wholesale power markets to be eased as they urge the EU to help stave off what some experts have warned could be the ‘energy sector’s version of Lehman Brothers’. Kristian Ruby, secretary-general of Eurelectric, which represents more than 3,500 European utilities, said the ballooning sums that power producers were required to post as collateral because of extreme price volatility in wholesale energy markets was of ‘grave concern’. He called for the rules to be softened so that generators could consistently put up other financial instruments, such as bank guarantees, at trading exchanges to avoid a liquidity crunch…”
September 6 – Yahoo Finance (Dani Romero): “The recent synchronized selloff in stocks and bonds has crushed one of the most popular strategies for long-term investors: the 60/40 portfolio. According to data from strategists at Bank of America Global Research published last week, the 60/40 portfolio — a mix of 60% stocks and 40% bonds — was down 19.4% year-to-date through the end of August, on track for its worst year since 1936. Through the end of August, the S&P 500 was down over 16% year-to-date, while long-term Treasuries were down over 20% and investment grade corporate credit was down 13%.”
September 7 – Bloomberg (Stephen Stapczynski): “China is lapping up liquefied natural gas shipments from Russia on the cheap. The Sakhalin-2 LNG export plant in Russia’s Far East sold several shipments to China for delivery through December at nearly half the current spot price in a tender that closed earlier this week, according to traders… Still, global rates have soared so much this year that the project can profit from those sales. The move is beneficial for both countries -- China is able to secure cheaper supply and resell shipments from more expensive exporters to utilities in Europe and Asia, while Russia can continue selling fuel at a profit.”
September 5 – Financial Times (Max Seddon, David Sheppard and Henry Foy): “Russia’s gas supplies to Europe via the Nord Stream 1 pipeline will not resume in full until the ‘collective west’ lifts sanctions against Moscow over its invasion of Ukraine, the Kremlin has said. Dmitry Peskov, president Vladimir Putin’s spokesman, blamed EU, UK and Canadian sanctions for Russia’s failure to deliver gas through the key pipeline, which pumps gas to Germany from St Petersburg via the Baltic Sea. Although Moscow continues to claim technical faults have caused the cuts in gas supplies, Peskov’s comments were the starkest demand yet by the Kremlin that it wants the EU to roll back its sanctions in exchange for Russia resuming full gas deliveries to the continent.”
September 5 – Reuters (Guy Faulconbridge and Felix Light): “The Kremlin… blamed the West for triggering the worst European gas supply crisis ever and warned the Group of Seven advanced economies that Moscow would retaliate over its plan to impose a price cap on Russian oil… ‘Problems with gas supply arose because of the sanctions imposed on our country by Western states, including Germany and Britain,’ Kremlin spokesman Dmitry Peskov told reporters… ‘We see incessant attempts to shift responsibility and blame onto us. We categorically reject this and insist that the collective West – in this case, the EU, Canada, the UK - is to blame for the fact that the situation has reached the point where it is now.’”
September 6 – Bloomberg: “Gazprom PJSC said it will shift its contract to supply gas to China to rubles and yuan from euros, as the Kremlin steps up efforts to move trade out of currencies it considers ‘unfriendly’ amid US and European sanctions. The state-run gas giant signed an additional agreement to its existing contract with China National Petroleum Corp. on the issue Tuesday... Payment will be made 50% in rubles and 50% in yuan, effective immediately…”
September 6 – Reuters (Ali Kucukgocmen): “Turkish President Tayyip Erdogan said… Russia is cutting natural gas flows to Europe in retaliation for sanctions, adding that Europe is ‘reaping what it sowed’… ‘Europe is actually reaping what it sowed,’ Erdogan told reporters…, adding that sanctions drove Putin to retaliate using energy supplies. ‘Putin is using all his means and weapons, and the most important of these is natural gas. Unfortunately - we wouldn't want this but - such a situation is developing in Europe,’ Erdogan said. ‘I think Europe will experience serious problems this winter. We do not have such a problem,’ he added.”
September 8 – Reuters (Aftab Ahmed): “India's finance minister said… importing Russian oil was part of the country's inflation-management strategy and that other countries were doing something similar. Despite Western pressure, India has not condemned Russia's February invasion of Ukraine, instead calling for a diplomatic solution to the crisis and an end to violence. Russia has for decades been India's biggest foreign supplier of defence hardware.”
September 5 – Washington Post (Laura Reiley): “It was a bad year for corn. And for tomatoes. And for many other American crops. Farmers, agricultural economists and others taking stock of this summer’s growing season say drought conditions and extreme weather have wreaked havoc on many row crops, fruits and vegetables, with the American Farm Bureau Federation suggesting yields could be down by as much as a third compared with last year. American corn is on track to produce its lowest yield since the drought of 2012… This year’s hard red winter wheat crop was the smallest since 1963… In Texas, cotton farmers have walked away from nearly 70% of their crop because the harvest is so paltry, according to the U.S. Department of Agriculture. The California rice harvest is half what it would be in a normal year, an industry group said.”
September 8 – Bloomberg (Pratik Parija and Swansy Afonso): “India, the world’s biggest rice shipper, restricted exports of key varieties that mainly go toward feeding Asia and Africa, threatening to rattle global crop markets and exacerbate food inflation and hunger. The government has imposed a 20% duty on shipments of white and brown rice, and banned broken rice sales abroad. The curbs apply to roughly 60% of India’s overall rice exports… The moves by India, which accounts for 40% of the global rice trade, will put further pressure on countries that are struggling with worsening hunger and soaring food inflation. Rice is a staple food for about half of the world’s population…”
September 6 – Bloomberg (Reade Pickert): “The US service sector expanded in August at the fastest pace in four months amid a pickup in business activity and new orders, while price pressures continued to ease. The Institute for Supply Management’s services index edged up to 56.9 from 56.7… Measures of business activity and new orders both advanced to their strongest readings of the year, reflecting both an ongoing shift in spending habits and steady wage gains. Demand strengthened abroad as well, with export orders expanding at the fastest pace in nearly a year. The upbeat report points to resilient and robust consumer demand for services despite high inflation, rising interest rates and general uncertainty about the economic outlook.”
September 7 – CNBC (Diana Olick): “In June the average rate on the 30-year fixed shot over 6% briefly, and that was enough to turn the once-hot housing market on its heels. Rates pulled back in July and August, but the damage was already done. Now rates are heading past 6% yet again, causing already beleaguered mortgage demand to fall even further… Mortgage applications to purchase a home dropped 1% for the week and were 23% lower than the same week one year ago. Given today’s higher rates, a person buying a $400,000 home would pay close to $700 more per month than they did a year ago.”
September 7 – CNBC (Diana Olick): “Some homeowners are losing wealth as high mortgage rates weigh on home values, at least on paper, as the once red-hot housing market cools quickly. Sales have been slowing down for several months, with mortgage rates now double what they were at the start of this year. Home prices, likewise, dropped 0.77% from June to July, according to… Black Knight… While that may not sound like a lot, it was the largest monthly decline since January 2011 and the first monthly drop of any size in 32 months. ‘Annual home price appreciation still came in at over 14%, but in a market characterized by as much volatility and rapid change as today’s, such backward-looking metrics can be misleading as they can mask more current, pressing realities,’ wrote Ben Graboske, president of Black Knight Data & Analytics.”
September 5 – The Hill (Sylvan Lane): “Persistent COVID-19 symptoms could be keeping millions of Americans out of the workforce. Economists and policymakers have struggled to figure out why a much lower percentage of working-age adults are in the labor force than before the pandemic. The number of Americans either employed or looking for work eclipsed its pre-pandemic level in August… But the labor force participation rate remains 1 percentage point below its February 2020 level, a gap roughly equivalent to 1.6 million people.”
September 7 – Reuters (Howard Schneider): “The U.S. unemployment rate may need to reach as high as 7.5%, double its current level, to end the country's outbreak of high inflation, according to new estimates from a team of researchers including two staff economists from the International Monetary Fund. That would entail job losses of perhaps 6 million people, but the research found that only under ‘quite optimistic assumptions’ about the behavior of the U.S. job market and inflation would the U.S. Federal Reserve be able to tame current price pressures with a smaller blow to employment.”
September 6 – Financial Times (Cheng Leng and Edward White): “China’s biggest four banks have been hit by a more than 50% increase in overdue loans from the property sector over the past year, as the real estate market’s liquidity crunch spills into the financial sector. China’s top lenders — the Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China — last week reported combined overdue property loans of Rmb136.6bn ($20bn) at the end of June, up from Rmb90bn at the same time last year. The rise in bad loans from the deteriorating property crisis is worsening asset quality across China’s Rmb367.7tn banking industry… A senior official at one of the Big Four lenders said the state of the property market meant that the banks had ‘no incentive’ to boost lending to the sector despite pressure from Beijing. ‘Our cost of capital is still too high. We have no incentive to beef up lending even though the regulator asked us to do so. The more loans we issue, the more [non-performing loans] we will have. The return on our lending business has gone down a lot while NPLs are taking off,’ the person said.”
September 8 – Reuters (Ryan Woo and Roxanne Liu): “The Chinese city of Chengdu extended a lockdown for a majority of its more than 21 million residents on Thursday to prevent further transmission of COVID-19 while millions more in other parts of China were told to shun travel in upcoming holidays. Chengdu… was locked down on Sept. 1 after COVID cases were detected, becoming the largest Chinese metropolis hit with curbs since Shanghai's lockdown in April and May.”
September 8 – Reuters (Liangping Gao and Ryan Woo): “China's consumer prices rose at a slower-than-expected pace in August while the rate of producer inflation hit an 18-month low… The consumer price index (CPI) increased 2.5% from the same month a year earlier…, slower than 2.7% in July and the 2.8% average forecast… Slower growth in consumer prices came as food prices rose 6.1% on year in August, versus 6.3% in July, with non-food items at 1.7% from July's 1.9% rise.”
September 7 – Reuters (Julie Gordon): “The Bank of Canada hiked interest rates by 75-bps to a 14-year high on Wednesday, as expected, and said the policy rate would need to go higher still given the fight against raging inflation. The central bank, in a regular rate decision, increased its policy rate to 3.25% from 2.5%, matching analyst forecasts to hit a level not seen since April 2008. The decision lifted rates above the neutral range for the first time in about two decades.”
September 5 – Bloomberg (Swati Pandey): “Australia’s central bank raised interest rates by a half-percentage point for a fourth consecutive meeting and signaled further hikes ahead in its drive to rein in inflation. The Reserve Bank took the cash rate to 2.35%, the highest level since 2015… The tightening is Australia’s quickest in a generation with the cycle beginning in May at a record-low 0.1%. Today’s decision reflects a resolve among global central bankers to keep increasing borrowing costs until inflation meaningfully eases, even at the cost of economic growth.”
September 6 – Bloomberg (Lorretta Chen): “Asian companies are increasingly resorting to loans, some just months in length, as a record bond rout this year complicates access to the more secure longer-term funding market. Among firms that had been active bond issuers in Asia, the number seeking short-term loan facilities this year has increased some 30% to 40%, according to Christophe Cretot, head of debt origination and advisory, Asia-Pacific at Credit Agricole SA… ‘We have seen that in markets such as Singapore, Indonesia and China where issuers with maturing bonds in the next three to six months are looking for facilities of nine to 12 months to buy some time before issuing again,’ he said.”
September 5 – Reuters (Nicholas Larkin and Eddie Spence): “Europe’s energy crisis is getting worse, piling pressure on the commodities industries that provide building blocks for the continent’s economy. Power- and gas-intensive sectors such as steel, fertilizers and aluminum -- the most widely used base metal -- are being forced to close factories or pass on soaring costs to customers. Even sugar makers are feeling the pinch. The tumult risks further squeezing households during the worst cost-of-living crisis in decades and pushing economies into recession.”
September 4 – Reuters (Michael Kahn): “An estimated 70,000 people protested in Prague against the Czech government on Saturday, calling on the ruling coalition to do more to control soaring energy prices and voicing opposition to the European Union and NATO. Organisers of the demonstration from a number of far-right and fringe political groups including the Communist party, said the central European nation should be neutral militarily and ensure direct contracts with gas suppliers, including Russia.”
September 5 – Reuters (Beril Akman): “Turkish inflation exceeded 80% for the first time since September 1998, as policies that prioritized economic growth and cheap lending exact a toll on the lira and price stability. Annual inflation quickened for a 15th consecutive month to 80.2% in August, up from 79.6% in July… President Recep Tayyip Erdogan, who believes that cheaper borrowing costs can slow inflation instead of pushing it higher, has kept exports and employment at the top of the agenda.”
September 6 – Bloomberg (Chikako Mogi): “The Bank of Japan said it would boost scheduled bond purchases as the intensifying Treasuries selloff puts upward pressure on global yields and weakens the yen. The BOJ said it would buy 550 billion yen ($3.8bn) of five-10 year bonds at its regular operations, up from 500 billion yen scheduled. The move comes as Japan’s benchmark 10-year yield hit 0.245%, approaching the 0.25% upper limit of the BOJ’s tolerated trading band. Japanese government bonds last came under pressure in June when only unprecedented BOJ buying kept benchmark yields below the 0.25% ceiling.”
September 7 – Financial Times (Leo Lewis, Kana Inagaki and Song Jung-a): “The yen fell further against the dollar on Wednesday, leaving it down a fifth this year as Japan’s government stepped up its verbal intervention aimed at stemming an acute sell-off in the currency. Japan’s currency declined to ¥144 against the dollar, its weakest level since 1998, despite a shift in language by Japanese officials, which gave the strongest hints to date that they could take action if the currency continues to slide. Finance minister Shunichi Suzuki said yen moves should be stable and reflect economic fundamentals, calling for stability in currency markets.”
September 4 – Reuters (Daniel Leussink): “Japan's services sector activity shrank for the first time in five months in August as a resurgence of COVID-19 infections hurt demand… The contraction shows that a recovery of the world's third-largest economy remains fragile at best and is worrying at a time when the global growth outlook is turning increasingly pessimistic. The final au Jibun Bank Japan Services purchasing managers' index (PMI) dropped to a seasonally adjusted 49.5, marking the first contraction since March.”
September 5 – Financial Times (Aime Williams and Steven Bernard): “Deadly flooding in Pakistan destroyed homes and decimated crops in what the country’s officials say is an unprecedented climate disaster, affecting an estimated 30mn people or about 15% of the population. About one-third of the country was still submerged last Tuesday when satellite data from the European Space Agency mapped the extent of the deluge.”
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